Munro is the first Canadian writer to receive the prestigious $1.2 million award from the Swedish Academy since Saul Bellow, who left for the U.S. as a boy and won in 1976.
Seen as a contemporary Chekhov for her warmth, insight and compassion, she delves into a wide range of lives and personalities without passing judgment on her characters, often girls and women. Her stories are acclaimed for their unique and piercing insight into the ordinary personal dramas in the towns and farming communities of her home region of southwestern Ontario.
Unusually for Nobel winners, Munro's work consists almost entirely of short stories. "Lives of Girls and Women" is her only novel, and even that is often described as a collection of linked stories.
"I knew I was in the running, yes, but I never thought I would win," the 82-year-old said by telephone when contacted by The Canadian Press in Victoria, British Columbia.
Munro told Canadian broadcaster CBC she was "surprised and delighted" at the news, which she heard in a pre-dawn phone call from her daughter.
"It just seems impossible. It seems so splendid a thing to happen that I can't describe it. It's more than I can say," Munro said.
Munro is beloved among her peers, from Lorrie Moore and George Saunders to Margaret Atwood and Jonathan Franzen. She is equally admired by critics. She won a National Book Critics Circle prize for "Hateship, Friendship, Courtship, Loveship, Marriage," and is a three-time winner of the Governor General's prize, Canada's highest literary honor.
Other short story collections include "Who Do You Think You Are?," ''The Progress of Love," and "Runaway."
Atwood - a fellow Canadian who also figured prominently in the Nobel buzz - tweeted, "Hooray! Alice Munro wins 2013 Nobel Prize in Literature."
The award is likely to be the capstone to a career that has spanned more than four decades. She told Canada's National Post in June that she was "probably not going to write anymore."
In announcing the Nobel Prize, the Swedish Academy called her a "master of the contemporary short story" whose work is characterized by "clarity and psychological realism." The academy's permanent secretary, Peter Englund told The Associated Press he had not managed to get hold of her but left a message on her answering machine.
"She has taken an art form, the short story, which has tended to come a little bit in the shadow behind the novel, and she has cultivated it almost to perfection," Englund said. "If you read Alice Munro sooner or later you will stand face to face with yourself and you will go from that meeting a different person."
In a 1994 interview published in the Paris Review, Munro said she made a mistake in trying to write "Lives of Girls and Women" as a regular novel. "It didn't feel right to me, and I thought I would have to abandon it," she said. "I was very depressed. Then it came to me that what I had to do was pull it apart and put it in story form. Then I could handle it."
Munro is the 13th female literature laureate in the 112-year history of the Nobel Prizes and the first woman to receive the award since Herta Mueller in 2009. Acknowledging critics' desire for a female laureate this year, Englund began his announcement Thursday by saying "yes, it will go to a woman," before revealing Munro had taken the prize.
Her published work often turns on the difference between her youth in Wingham, a conservative Canadian town west of Toronto, and her life after the social revolution of the 1960s.
The daughter of a fox farmer and a teacher, she was born Alice Anne Laidlaw. She was a literary person in a nonliterary town, concealing her ambition like a forbidden passion.
"It was glory I was after ... walking the streets like an exile or a spy," recalls the narrator of "Lives of Girls and Women."
She received a scholarship to study at the University of Western Ontario, majoring in journalism, and was still an undergraduate when she sold a story to CBC radio in Canada. She dropped out of college to marry a fellow student, James Munro, had three children and became a full-time housewife. By her early 30s, she had become depressed and said she could barely write a full sentence.
Her good fortune was to open a bookstore with her husband, in 1963. Her narrative talents resurfaced but her marriage collapsed. Her first collection, "Dance of the Happy Shades," came out in 1968 and won the Governor's prize.
She later married Gerald Fremlin, a geographer.
Some have called her "the greatest author in North America and, yes, I tend to agree with that," said the academy's Englund. "We're not saying just that she can say a lot in just 20 pages - more than an average novel writer can - but also that she can cover ground. She can have a single short story that covers decades and it works."
Last year's Nobel literature award went to Mo Yan of China.
The 2013 Nobel announcements continue Friday with the Nobel Peace Prize, followed by the economics prize on Monday. The awards will be handed to the winners on Dec. 10, the anniversary of prize founder Alfred Nobel's death in 1896.
AP National Writer Hillel Italie in New York contributed to this report.